Britain's FTSE, mid caps hit record highs as miners jump

A worker shelters from the rain as he passes the London Stock Exchange in the City of London at lunchtime October 1, 2008. REUTERS/Toby Melville/Files

LONDON (Reuters) - UK shares rallied to record highs on Thursday, lifted by a surge in commodities-related stocks following an interest hike by the U.S. Federal Reserve.

The blue chip FTSE 100 index was up 1 percent at 0954 GMT, hitting a record high of 7,440.42 points. The British mid cap also hit a record high and was up 0.5 percent.

British stocks joined in a broader rally among major European indexes which gained after Dutch Prime Minister Mark Rutte won an election victory in the Netherlands, fighting off a challenge from far-right rival Geert Wilders.

Likewise a decision by the U.S. Federal Reserve to raise interest rates by 25 basis points on Wednesday also helped, with mining stocks in particular boosted by a weaker dollar, which makes the underlying commodity cheaper for holders of foreign currency.

Mining stocks rose 6 percent and added the most to the FTSE 100, around 34 points, followed by energy stocks which added around 21 points to gains. Royal Dutch Shell and BP rose 2.3 percent and 1.7 percent respectively.

Shares in Anglo American surged nearly 9 percent and were on track to mark their best day in eight months after Indian billionaire Anil Agarwal said that he would buy a stake of up to 2 billion pounds ($2.46 billion) in the global miner.

“It is a goldilocks result for the markets this morning. The Federal Reserve has given us a dovish hike, that’s still fuelling the era of easy monetary policy and the positive impact it’s having on stocks,” Jonathan Roy, advisory investment manager at Charles Hanover Investments, said.

”You couple that with a favourable outcome from the Dutch elections and throw into the mix a large investment into UK-listed miners ... so that’s the perfect storm for fresh highs on the FTSE 100.”

Precious metals miners Fresnillo, Polymetal International and Randgold Resources were particularly in demand as the U.S. Federal Reserve’s more dovish tone, saying that it will stick to a gradual path of interest rate rises.

“For as long as the Fed continues to emphasise a gradual raising of interest rates, we expect interest rate hikes to lag inflation growth, resulting in an interest rate-inflation ‘differential’ that should be mildly positive for precious metals.”

Among the fallers, companies trading ex-dividend weighed, with Direct Line down nearly 4 percent, the biggest FTSE faller.

Likewise a number of ratings downgrades also put pressure on stocks, with drugmaker Hikma down 2.7 percent after JP Morgan cut the stock to “neutral” from “overweight”, and Merlin Entertainments also down 3.2 percent following a Berenberg downgrade to “sell” from “hold”.